
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, August 6, 1993                   TAG: 9308110244
SECTION: EDITORIAL                    PAGE: A10   EDITION: METRO 
SOURCE: Robert G. Beamer
DATELINE:                                 LENGTH: Medium

TRADE AGREEMENT DOESN'T BODE WELL

This letter is written in response to Mr. Brink Lindsey's commentary on behalf of NAFTA. It would appear that Mr. Lindsey graduated from the Darth Vader School of Economics. The thrust of Mr. Lindsey's argument is that substituting cheap labor for more expensive labor will increase the manufacturer's productivity and create aggregate wealth. In building his argument he equates substituting labor for labor as analogous to substituting technology for labor. Mr. Lindsey is incorrect on all accounts.

Substituting cheaper Mexican labor for more expensive American labor will in fact decrease productivity. Corporations that move to Mexico are betting that the cost of wages will fall further than the fall in productivity. In the long run, or at equilibrium, an individual's wage is equal to their product. It is during the period of disequilibrium that the manufacturers will make substantial profits. Over a period of time wages in Mexico will rise and will reconcile with their true value. Prior to that there will be a substantial gap between wages and true value(price in the U.S. market), it is this gap which will generate profit.

One should also be aware that it is not direct wages that are causing manufacturers to move south; it is the indirect costs of payroll taxes, medical insurance, workers comp. and pension costs. The price of goods sold is a function of demand, not cost, so the consumers price will be the same whether the good is produced in Mexico or the U.S. The ability to freely sell back to the U.S. is what makes this so attractive to manufacturers.

Substituting technology for labor is both quantitatively and qualitatively different from substituting labor for labor. Substituting technology causes linear changes in the production process while substituting labor can only cause incremental changes along existing lines. Substituting technology for labor also creates more jobs in the long run than it replaces in the short run.

There will be little real wealth created by shifting production from the U.S. to Mexico, and what wealth is created will be highly skewed as a return to capital and wages to highly skilled workers. The shift in production will further exacerbate the cleavage between skilled and unskilled workers in this country. It will intensify the pressure on real wages causing a further deterioration in the standard of living.

In the larger sense productivity is an organic concept. Every individual's productivity is not only the result of the immediate production process, but is also a product of contributions made by many different people in different occupations. It is an accumulation of sacrifices made by prior generations. Every job counts and every job is the result of a national investment, not just private investment.

Americans should think through what it means to ship jobs and manufacturing technology to other countries. For this and even other more fundamental reasons NAFTA is not in our national interest nor is it in the interest of Southwest Virginia. \

AUTHOR Robert G. Beamer of HIllsville is a certified public accountant.

by CNB